2011 In Review - The Worst-Performing Mutual Funds

By Stephen D. Simpson, CFA | December 28, 2011 AAA

Given that there are thousands upon thousands of funds and trillions of dollars under management, mutual funds are a critical component of the investment scene. Many investors have a large percentage (if not all) of their retirement savings in these vehicles and though there is little need for day-to-day assessment, a periodic review is worthwhile. To that end, then, it is worth exploring where mutual fund investors saw the worst returns for 2011.

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Readers should note that this was written with two weeks left in December, and final results may be somewhat different. Moreover, this analysis includes only funds that are open to new investment, have minimum initial investment requirements below $10,000, and assets under management of at least $100 million. (You might be carrying more risk than you think if your fund invests in derivatives. For more, see A Brief History Of The Hedge Fund.)

Emerging Markets Get Submerged
Stock markets across the developing world were weak in 2011, especially in Asia, and it is no surprise that funds focused on those areas top the list of under-performers. The Oberweis China Opportunities fund lost almost 39% in 2011 and the Dreyfus Greater China was scarcely better.

Similar performance can be found in the Eaton Vance Greater India fund, as well as the Matthews India Investor and John Hancock Global Opportunities funds.

Indiscreet Returns
Unfortunately, a few more generalist and discretionary mutual funds appear higher-up on the list of top underperformers than on the top performers list. Bill Miller's Legg Mason Capital Management Opportunity fund had a lousy year, losing about 35% of its value in 2011. Fairholme was likewise a notable laggard this year, losing almost 30% for the year, while CGM Focus fell about 27%.

Not so Resourceful
After sifting through dozens of underperforming emerging market and international funds, investors will also see that there were plenty of weak resource-oriented funds in 2011. The Oppenheimer Gold & Special Minerals Fund dropped more than 25%, as did the Franklin Gold and Precious Metals fund.

The Bottom Line
With the clock running out on 2011, investors should consider whether it is time to take their losses and move on in 2012. With tightly-focused funds like the resource or precious metal funds, it all comes down to investor expectations about metals prices in 2012 and the extent to which they value these funds for their diversification potential. For the emerging markets funds, though, there is an argument to hang on (or for newcomers to buy) for what still looks like above-average long-term potential. (For related reading on emerging markets, see The Risks Of Investing In Emerging Markets.)

Among some of the better-regarded funds, investors may want to look at names like Cambiar Aggressive Value, Nuveen Tradewinds Global Resources and Royce Global Value as holdings that have had a bad year, but could rebound in the years to come.

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

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